Hawaiian Electric Industries, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The combined filing reports for HEI, the parent company, and Hawaiian Electric, its regulated electric utility subsidiary. HEI also owns American Savings Bank (ASB) and Pacific Current. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparator |
|---|---|---|
| HEI revenue | $928.2 million | $785.1 million; up 18% |
| HEI operating income | $93.5 million | $99.3 million; down 6% |
| HEI net income for common stock | $54.7 million; diluted EPS $0.50 | $69.2 million; diluted EPS $0.63 |
| Electric utility revenue | $830.4 million | $708.8 million |
| Electric utility net income for common stock | $47.0 million | $46.4 million |
| ASB net income | $18.6 million | $23.9 million |
| ASB net interest margin | 2.85% | 2.79%; 2.91% in Q4 2022 |
| HEI operating cash flow | $181.0 million | $92.6 million |
| HEI investing cash flow | $(137.5) million | $(227.7) million |
| HEI financing cash flow | $71.1 million | $131.3 million |
HEI cash and cash equivalents were $315.3 million at March 31, 2023, versus $199.9 million at year-end. Total assets were $16.44 billion and total liabilities $14.17 billion. HEI long-term debt, excluding bank debt, was $2.48 billion; short-term borrowings excluding bank borrowings were $148.8 million. ASB deposits were $8.23 billion and other bank borrowings $680.7 million. Hawaiian Electric reported $1.83 billion in long-term debt, no short-term borrowings at quarter-end, and $116.0 million in cash.
Electric utility operating income was $75.9 million on $830.4 million of revenue. Utility operating cash flow was $169.4 million, capital expenditures were $122.1 million, and net cash provided by financing was $28.0 million. Utility kWh sales fell 1.1% year over year. Average fuel cost was $139.88 per barrel, up from $103.40.
Material changes and drivers
- HEI revenue rose primarily on higher electric utility revenue and higher bank interest income. HEI common-stock earnings fell 21%, mainly because ASB earnings declined and the “other” segment’s loss increased; Q1 2022 included an $8.1 million gain on sale of a Pacific Current equity-method investment.
- Utility revenue increased largely with higher fuel prices and generation, plus annual revenue adjustment and interim project recovery revenues. Higher fuel expense was substantially offset by lower purchased power expense; utility common-stock earnings increased modestly.
- ASB interest and dividend income increased, supported by loan growth and higher asset yields. However, deposit and borrowing interest expense rose sharply, while noninterest expense increased. ASB’s average core deposits declined and it relied more on term certificates and wholesale funding.
- ASB loans held for investment, net, increased to $5.99 billion from $5.91 billion at year-end. The allowance for credit losses was $71.3 million; Q1 provision was $1.2 million, compared with a $3.8 million reserve release in Q1 2022. Net charge-offs were 0.14% of average loans on an annualized basis, versus 0.01%.
- HEI other comprehensive income was $20.5 million, compared with a $117.2 million loss a year earlier, reflecting a partial improvement in unrealized securities losses. ASB’s after-tax unrealized loss on available-for-sale securities was $308.6 million at quarter-end.
Outlook, liquidity, risks and unusual items
- Outlook: The filing gives no specific consolidated earnings or EPS guidance. Management said it expects liquidity to be adequate over the next 12 months and beyond, while acknowledging uncertainty from fuel costs, inflation, higher interest rates and customer collection timing. HEI said it currently expects to maintain its quarterly dividend at $0.36 per share; the board reviews it quarterly.
- Capital plans: The Utilities forecast approximately $2.2 billion of net capital expenditures for 2023–2027: about $1.6 billion for asset replacement and modernization, $0.3 billion for climate-related and resilience projects, and $0.3 billion for reliability. Estimates may change with project costs, permitting and regulatory decisions.
- Available funding: At March 31, HEI and Hawaiian Electric had $175 million and $200 million, respectively, of unused revolving-credit capacity; HEI had $49 million of commercial paper outstanding. ASB reported approximately $2.0 billion of unused FHLB capacity, $0.9 billion of unpledged securities available as collateral, and approximately $3.2 billion of liquidity—nearly three times uninsured deposits, according to management. ASB reported uninsured deposits of approximately 15% of deposits and regulatory capital ratios above “well-capitalized” thresholds.
- Debt transactions: Utilities issued $150 million of unsecured senior notes, drawn in February, at fixed coupon rates ranging from 6.11% to 6.70%, depending on issuer and series. HEI drew the remaining $65 million of its $100 million term loan on March 31; the facility matures November 30, 2023. HEI authorized $100 million of senior notes intended to refinance that loan, drawable by June 2, 2023.
- Operating and regulatory risks: Fuel prices and customer bills, inflation, interest rates, elevated utility receivables and bad debt, bank deposit outflows and funding costs, and potential recession could pressure results or liquidity. Renewable project delays, cancellations, higher costs and supply constraints could impede decarbonization and reliability plans or expose the Utilities to regulatory consequences. The Utilities’ five-year regulatory framework includes annual revenue adjustments and specified cost-recovery mechanisms, but recovery remains subject to PUC processes and approvals.
- Contingencies and unusual developments: The Hawaii Supreme Court affirmed the PUC’s denial of the amended Hu Honua biomass PPA; judgment was entered April 12, 2023. Utilities’ environmental reserves included $2.6 million for the former Molokai generation site and $9.9 million for Pearl Harbor PCB investigation and remediation; final costs depend on cleanup requirements. Management said it could not estimate the ultimate outcome or possible loss in the Molokai site lawsuit. Recovery of COVID-19-related deferred utility costs was pending PUC consideration; the recorded regulatory asset was $9.6 million at March 31.
- Reporting controls: HEI and Hawaiian Electric management concluded disclosure controls were effective at quarter-end; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether ASB can retain core deposits and manage rising funding costs while sustaining net interest margin and loan quality.
- Progress on utility customer collections, past-due balances and bad debt, as well as the timing and regulatory treatment of deferred costs.
- Actual financing costs, refinancing of HEI’s November 2023 term loan, and funding of the Utilities’ capital program.
- PUC decisions and project delivery for renewable procurement, storage, grid upgrades and associated cost recovery; compare progress with statutory renewable targets.
- Changes in securities valuation losses, credit metrics, environmental remediation estimates, and legal or regulatory proceedings.